Fighting to Gain Business Accounts

With 800 new members recently joining, Redwood CU said it’s ready to deepen any small business relationships that came over.

The Rundown

Business owners hearing more on what CUs have to offer.

Banks getting more aggressive on retaining business customers.

Refinances, helping to keep costs low among CU’s incentives.

Brett Martinez understands that the real, meaningful work starts after a new member joins a credit union.

As president/CEO of the $1.9 billion Redwood Credit Union in Santa Rosa, Calif., he welcomed, the 800 new members who signed on during Bank Transfer Day and on the following Monday.

How those fresh relationships will shift over into business loans, credit cards, mortgages and investments is the next long-term step to cementing them. An even better prospect is those who will move their existing loans to Redwood.

“We’re focused on bringing over full relationships, not just checking,” Martinez said. “So far, we’ve had good success with new loan requests. Across the board, they’re up. This wasn’t about a checking account. I call it divorcing a financial institution. You want them to bring it all over.”

One area primed for more growth is Redwood’s robust commercial lending program. Martinez said the credit union has $43 million in business loans with another $20 million in the pipeline. The cooperative is the top U.S. Small Business Administration lender in its market and among the agency’s top five credit union lenders in the country, he added.

Martinez said it’s still too early to say how many of Redwood’s newest members are small business owners, but one thing he knows for sure, the credit union has responded to a demand for business loans and deposits. A 2003 survey asked members what they needed the most. Martinez said many of them said they wanted both their personal and business accounts at the same financial institution.

Meanwhile, business loans at Redwood have doubled since September, Martinez pointed out. He attributes the increase to all of the press surrounding Bank Transfer Day and the uninformed learning that credit unions are an alternative to banks.

Still, what people probably aren’t hearing about is that credit unions do offer business loans, Martinez said. Because Redwood is a well-known lending leader in its small business markets, it is likely the exception.

“Consumers tend to bring all of their accounts over at one time. With businesses, it’s usually the loan first, and then we build from there,” Martinez said. “It really depends on what their needs are.”

For that reason, overall, it’s unlikely that small business owners moved all over their accounts over on Bank Transfer Day, Martinez acknowledged. At Redwood, roughly 45% of its 200,000-member base is business owners. Based on past experience, most won’t switch financial institutions on a Saturday.

Redwood’s business service offerings have helped create loan volume, Martinez said. Having a full suite of products and services went far a few years ago when banks started scaling back their lending activity.

“We were lending when others weren’t,” he recalled.

While opportunities are still plentiful at Redwood, Martinez emphasized that the credit union will only go with quality loans. Some of those coming over now are former, longtime bank customers with solid financial track records.

“Banks were trying to shake their balance sheets and not renewing,” Martinez said. “They were doing what their regulator wanted them to do but losing good customers at the same time.”

Looking ahead to build on those new alliances, Redwood, like some credit unions, may have a 12.25% member business lending cloud hanging over their efforts. Martinez said Redwood has about two years left before it reaches its MBL cap.

“And, that’s a shame. The closer we get to it, the sooner we won’t be able to serve our marketplace.”

It’s one thing to fill a void left by banks, but Martinez said Redwood has followed the rules–acquiring the proper lending talent and keeping charge-offs and delinquencies to a minimal. Yet, the MBL cap could put the credit union’s future plans in reverse.

“We’re helping small businesses deal with all of the issues going on. Moving up the cap and [revisiting] what qualifies under the cap needs to happen,” Martinez said. “My personal opinion is unoccupied real estate does not belong under the cap.”

At the $4.4 billion Randolph-Brooks Federal Credit Union, business lending is as big as the Lone Star State. The Live Oak, Texas-based cooperative has nearly $220 million in member business loans and is active SBA lender participating in many of the agency’s programs, including its Patriot initiative that helps military personnel and veterans. Raddon Financial Group recently ranked the credit union among 2010’s top 20 high performers in the industry.

On Bank Transfer Day, RBFCU opened up 727 new accounts, said Sonya McDonald, senior vice president of market development. In October, the credit union had a 70% increase in membership and a 93% jump in checking accounts compared to October 2010.

“We have developed a reputation in our markets for offering value and that has paid dividends. More folks are starting to pay more attention,” McDonald said. “The next step is business as usual, which is deepening those [new] relationships.”

Since 2008, RBFCU has seen an increase in its business accounts and loans prompted mainly from banks reducing their lines of credit to small businesses, said Mark Sekula, executive vice president and chief lending officer. For 2011, loan growth is on track to be in the 20% range with deposits at 25%, he added.

While the numbers are solid, Sekula said the competition for small business accounts has grown significantly over the past 45 to 60 days.

“Banks were losing their relationships, but now they’re working harder to retain them because losing them affects charge-offs, delinquencies and in some cases, yield,” Sekula said.

As a result, RBFCU’s numbers have dropped slightly and the credit union has had to increase its marketing efforts, Sekula noted. Still, he said this is a great time to search for new partnerships because the bigger unknown is whether banks are bumping up fees for business services. While small businesses might be OK with fees on their personal accounts, they may not be with an increase on their commercial accounts.

“I can’t say if that’s happening on the business side. Most are already paying some fees on their commercial accounts,” Sekula said.

Unlike some credit unions, RBFCU has much more room to work with to court new members on the loan side. Sekula said it can grow up to $350 million and remain under its MBL cap. Still, he is an advocate for raising the cap and has worked with smaller credit unions seeking guidance on managing under the threshold.

In June, Sekula traveled to Washington to testify before a House Small Business Committee to support the repeal of a provision that would require data collection on business customers. Included in a 2010 bill to overhaul the financial system, Sekula said the requirement would be a burden to credit unions and make it harder for them to lend to businesses.

Back at RBFCU, going forward, Sekula said as on the consumer side, deepening relationships will be just as critical with small businesses post-Bank Transfer Day.

“Our greatest opportunities will be with refinances. Business owners want to keep their expenses low and have fixed payments. We can work with members for the long term.”